RAPAPORT... India’s diamond industry is working to produce
guidelines for banks to reduce their risks when lending to the trade.

The nation’s Gem & Jewellery Export Promotion Council (GJEPC) has been
collaborating with the government and lenders to create a written policy, Colin
Shah, vice chairman of the trade body, told Rapaport News.

Representatives of the GJEPC will meet with 30 banks in Mumbai on May 11 to address their
concerns about continuing their financial support of the sector in the wake of
the Nirav Modi scandal, Shah added. The organization will publish the document
following that summit.

India’s diamond trade has come under scrutiny since claims emerged in January
that jewelry tycoon Modi and his uncle, Mehul Choksi, managing director of
Gitanjali Gems, had defrauded Punjab National Bank of $2 billion. Traders fear
tighter credit terms following the alleged scam, with the State Bank of India
already introducing stricter collateral conditions shortly after the Modi
investigation came to light.

Financial institutions have several concerns about the sector, including the
potential devaluation of companies’ inventory, Shah explained. To that end, the
GJEPC will use the meeting to advocate for the industry, while discussing how
lenders can keep their risk level low, Shah explained.

“We’re trying to make sure good [companies] continue to get funding, as well as
mitigating the costs to bankers,” Shah said.

Entitled
“Diamond Financing 2018: New Challenges,” the document urges bankers to maintain
current credit limits, since reducing them would further damage India’s diamond
exports, the GJEPC explained in a preview on Tuesday.

The
council proposes that a company’s inventory will be assessed at least once a year
by an independent auditor, and recommends setting up a
“credit-risk investigation team” to inform banks’ lending decisions. It also
wants to introduce quarterly meetings between the GJEPC and banks to analyze
firms’ key data.

The GJEPC is further lobbying the banks to set their credit limits in
dollars rather than rupees to protect borrowers against currency fluctuation,
and to base a company’s collateral requirements on its credit rating. Finally,
the document will recommend that all companies sign up to My KYC Bank, a
digital know-your-customer platform, to which lenders will also gain access.

The collaboration is the first time the GJEPC has worked together with
banks to produce a document of this type, Shah noted.

Shah will represent the GJEPC at the meeting alongside Sanju Kothari of the
GJEPC’s banking, insurance and taxation sub-committee. Paul Rowley, executive
vice president of diamond trading at De Beers, will give a presentation to
bankers on downstream demand, and will explain the miner’s financial-compliance
standards. Suresh Prabhu, India’s minister of commerce and industry, will also
attend the meeting, as
will Commerce Secretary Rita Teaotia and Rajnish Kumar, chairman
of the State Bank of India, Shah said.